Wow, this came out of left field.

Private equity group Pacific Equity Partners will acquire 100% of Citadel for $5.70 per share, in cash. Up to 15c of this will be in the form of a fully franked dividend, which provides a further 6.4c in benefit. It values Citadel at just over $500m in enterpirse value -- or almost 15x EV/EBITDA.

This is a 42% premium to the last traded price. 

Shareholders can elect to retain an interest in Citadel via a scrip alternative (see announcement for details). But note that these will probably lack the liquidity of ASX traded shares.

Shareholders will get a scheme booklet in late October, and the deal is expected to be implemented at the end of the year. 

This seems like a good deal for shareholders, and is above my most recent estimate of value. I just wish i had the conviction to buy more when shares crashed earlier this year.

With shares trading at $5.57 after today's close, there's a 2%-odd arbitrage opportunity for those that can be bothered. I'll likely just sell on market so I can redeploy the funds sooner and avoid the wait.

Citadel's results were ok in my view.

Good (underlying) growth, defensive characteristics, high margins and recurring revenue. Dividend maintained (shares on a 2.6% fully franked yield). 

The business continued to shift more towards software and higher margin recurring revenue, with a much bigger focus on health. As with Alcidion, the company pointed towards the growing opportunities in this sector.

If we go with the underlying numbers (which strip out acquisition transaction costs and contract adjustments), CGL has 14.6c in per share earnings, which is about 9% below FY19. 

However, the Wellbeing acquisition contributed only a few months worth of earnings. On a proforma basis, assuming a full year's contribution, EPS would be closer to 19c or 18% growth.

The buisness has stripped out $1.5m in costs from Wellbeing, and this part of the business is performing in line with expectations

This is really just a question on how well they execute on the opportunity they describe. The business is now (in principle) better structured to take advantage of the opportunities and deliver more attractive returns.

No guidance was issued, but the company reiterated expectations for long term 15% organic revenue growth for its software segment, and 5-10% for services. Given the current breakdown, that averages out at around 11% for the total group. Also important to note that software has margins of 65% versus services margins of roughly 30%.

I will update my valuation shortly.

Full results here

Citadel has updated shareholders on the impacts to date from the coronavirus crisis.

Key points:

• No significant projects or contracts have been delayed or cancelled, so far.
• Customers are predominately from Government and Health sectors that are long-term contracts and for business critical software applications.
• Citadel manages 42% of Australia's public pathology records, and is working with Healthcare providers to adapt to new tech that supports virus testing.
• The company is planning on reducing opex, delay any non-essential investment and manage liquidity and cash flow within debt covenants 
• Wellbeing is seeing opportunities arise across various products and services. 70% of its revenues are recurring, genereated form long-term contracts.
• Post merger, Citadel expetcs to have $10m in cash and an undrawn facility for a further $10m
• The company will still pay its interim dividend.

ASX announcement here

Citadel has been punished more than most during this sell down. 

Shares have lost over 70% since Feb 17.

One of my best Strawman recommendations ever...

With health now a major segment, the coronavirus is going to have a direct impact. While it may be true that a lot of the health segment has high margin and recurring revenues, it's not going to be easy to make new sales into an overstretched and critically under-resourced health system. We'll also get to see just how recurring much of those revenues are.

The other problem is that around 2/3rds of revenues come from services and consulting - and demand for services is likely to take a massive hit over the coming year as customers focus on bigger priorities.

And all this just as the company took on more debt to fund the acquisition of Wellbeing, and now has a worthless share purchase plan following the institutional raise.

With a lot of long-standing government contracts, I had assumed that Citadel could survive a downturn, but I hadnt accounted for such a material shock.

This recommendation is very much under review.

Some more on-market purchases from Directors. The most notable is from long standing director Mark McConnell, the second largest shareholder.

He purchased a further 104,600 shares at $4.77 each on the 19/2/20 (about $500k worth). He owns around 12% of the entire company.

Directors Robert Alexander and Peter Leahy purchased $35k and $47k on the same day, respectively. 

Results came in almost exactly at the midpoint of guidance.

Nevertheless, it was a tough year with a more than 40% drop in profits. This is however largely explained by the trasnition to a SaaS model and the delay (but not cancellation) of key projects.

Costs were flat, debt was reduced and Saas Revenue was up strongly.

Profit was lower than i had anticipated, so i have reduced my valuation. Nevertheless, shares remain decent value for a long term hold.

Results presentation can be viewed here